Markets WRAP: Rand closes at R13.73/$

The rand closed the day at R13.72/$ on Tuesday afternoon, averaging between R13.54 and R13.73. The rand firmed on the news that SA was out of a recession earlier on Tuesday, but then stumbled after the National Assembly voted in favour of adopting the report by the Constitutional Review Committee which recommends the amendment of Section 25 of the Constitution to allow for the expropriation of land without compensation.

OVERVIEW: US equity futures dropped and European shares tracked declines in Asia as investors reined in their optimism over any breakthrough in the trade war. Treasuries gained and the dollar retreated.

Contracts on the S&P 500, Dow Jones and Nasdaq indexes all pointed to US shares giving up a chunk of Monday’s gains at the New York open, while the Stoxx Europe 600 Index slipped led by automakers. Stocks tumbled in Japan and dropped in Australia and South Korea after media appearances from Trump administration officials shed little light on the specifics of any Sino-American trade agreement.

Shares in Shanghai and Hong Kong fared better, fluctuating before ending higher as the yuan climbed. The greenback weakened a second day as the euro and pound rallied after an adviser to the EU’s top court said the UK should be allowed to reverse its so-called Article 50 notice, which triggered the Brexit process.

European government bonds were mixed. The optimism that drove gains for riskier assets on Monday appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the US and China on trade at the weekend.

Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the US, nor did its statement mention the 90-day timeline for talks the Americans have specified.

In the Treasury market, three-year yields climbed above their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. But the more closely watched part of the Treasury yield curve - the gap between two-year and 10-year yields -remains upwardly sloped.

Elsewhere oil continued to find support, advancing for a second day in the wake of moves by producers to address a supply glut that contributed to a tumble in West Texas Intermediate prices last month. South Africa’s rand jumped as growth data beat expectations. - Bloomberg

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said in an afternoon note to clients that the news that SA was officially out of recession had boosted the rand's positive momentum. "Shortly after the release, the rand strengthened to R13.58 against the greenback, securing the upward trend of the local currency. Agriculture, manufacturing, finance and business services were all seen to contribute positively to the increase in GDP.

"The uptick will certainly deliver a much needed improvement in local consumer and business confidence."

By 13:03, the rand was trading at R13.56/$, averaging between R13.54 and R13.70.

The rand firmed by more than 1% on Tuesday morning on news that SA had officially exited the recession.

The SA economy grew by 2.2% in the third quarter, after negative growth in the first two quarters of the year. 

The local currency was changing hands at R13.55 to the greenback by 11:39, after opening at R13.69/$.

Tokyo stocks open lower on profit-taking after bull run

Tokyo stocks opened lower on Tuesday despite hefty gains on Wall Street, as investors sought to lock in profits after seven days of gains on the Japanese market.

The benchmark Nikkei 225 index was down 0.11% or 25.68 points at 22 549.08 in early trade, while the broader Topix index fell 0.20% or 3.42 points to 1 685.63.

"Positive sentiment following rallies in US shares are seen outweighed by sales on profit-taking by investors" as there is nothing surprising in US rallies on a detente in the US-China trade war over the weekend, Okasan Online Securities said in a commentary.

Asian markets slip as China-US trade deal joy subsides

Asian markets mostly dropped on Tuesday as the previous day's euphoria over the China-US trade ceasefire gave way to questions about whether the two can ultimately resolve their differences. However, oil prices continued to rise, building on Monday's surge fuelled by the agreement as well as news of a Russia-Saudi Arabia pact to cap output.

Global investors were given some much-needed Christmas cheer at the weekend after Donald Trump and Xi Jinping called a halt to their painful tariffs battle for 90 days while they try to resolve their differences.The news lit a fuse under markets after a torrid year that has been dominated by the trade war between the world's top two economies, which many fear will hit global growth.

Economists expect Stats SA to announce SA has exited recession 

Stats SA is expected to announce on Tuesday morning that SA has officially exited its recession, according to the projections of seven economists. Gross domestic product growth figures for the third quarter will be released at 11:30. 

But while economists anticipate that the country's economy will no longer be in decline, overall economic growth for 2018 is expected to remain weak.

SA slipped into a technical recession in the first half of 2018 following two consecutive quarters of negative GDP growth. The economy contracted by a restated 2.6% in the first quarter and 0.7% in the second.